International
Business
Elina Baghdasaryan
WHAT IS IB?
the study of transactions
taking place across national
borders for the purpose of
satisfying the needs of
individuals and organizations
“CLASSICAL” IB
international trade ( exporting and
importing)
Multinational
enterprise (MNE)
A multi-plant firm that controls and coordinates
operations in at least two countries; or a firm that
engages in value-added international business
activities, that has affiliates in more than one
country, and whose operations and activities in
different locations are actively coordinated by one
or more headquarters organizations.These firms
have affiliates or subsidiaries in other countries
Can you think of Armenian small to medium
MNE’s?
MNEs and their foreign affiliates
account for one third of world
output and GDP
MNEs play an
important
role in
today’s
global
economy
two-thirds of international
trade
MNE’s contribution to world GDP was estimated at 32% in
2016, of which roughly one third was by foreign affiliates
abroad and two thirds by MNE headquarters and domestic
affiliates in the home country.
2. FOREIGN AFFILIATES ARE DIFFERENT
FROM DOMESTIC COMPANIES
foreign affiliates are overall found to be larger, more capital intensive, more productive and
invest more in R&D.Foreign affiliates are also more oriented towards international markets
(through exports), buy more intermediates and source these intermediates more from abroad,
hence incorporating larger foreign value added in their output
These differences between foreign affiliates and domestic companies are due to differences in
production technologies but also because of the specific roles of MNE affiliates. Some
affiliates are motivated by the desire to place production close to customers and avoid trade
costs (i.e. horizontal MNEs) while others produce goods and services that are used as inputs
for production activities within the MNE network in other countries (i.e. vertical MNEs).
DIFFERENCES IN OUTPUT BETWEEN FOREIGN AFFILIATES
AND DOMESTIC COMPANIES, 2016 (% OF OUTPUT)
3. FOREIGN AFFILIATES DO INTERACT
WITH LOCAL FIRMS
foreign affiliates have strong
backward and forward linkages
with domestic companies,
including SMEs.
Foreign affiliates source more
than two thirds of
intermediates from their host
economy.
FOREIGN AFFILIATES DO INTERACT
WITH LOCAL FIRMS
Foreign affiliates operate not only as
customers in host countries, but also as
suppliers of intermediates and final
products. About two thirds of the
production of foreign affiliates feeds
into domestic value chains: 29% of
affiliates’ production in 2016 was for the
final domestic market, while 38% was
used locally as an input to other firms in
the domestic economy. Once again, the
most important domestic clients of
foreign affiliates are domestic nonMNEs, buying 56% of foreign affiliate
domestic intermediate production.
4.MNES ARE INVOLVED IN DIFFERENT
TYPES OF ACTIVITIES ACROSS GVCS
WHY IS IB SO
POPULAR?
guess the word
Economic globalization
The growing interdependence of locations
and economic actors across countries and
regions
ECONOMIC ACTORS
very small actors (such as indi- vidual entrepreneurs), or
very large ones (such as a nation-state, which itself consists
of individuals), as well as firms of all sizes.
It includes not only MNEs, but all formally and
systematically organized entities (such as non-governmental
organizations, clubs, associations, charities, governmental
organiza- tions, state-owned firms, hospitals, research
centers, and universities), each functioning as a clearly
delineated single organization for the generation of a
specific set of outcomes or goals defined by their
stakeholders.
THE CONSEQUENCES OF
GLOBALIZATION
Coca-Cola is an example of a firm that advertises and sells the same product
on a global basis. This seems to work most of the time for Coca-Cola, but
homogeneity in consumption patterns in the food and drinks industry is
rarely achieved. A good example of this is the soft drinks mar- ket in
Indonesia, which, despite Coca-Cola’s considerable marketing efforts,
continues to be dominated by unsweetened and non-fizzy tea.
Despite HSBC’s huge investment in announcing itself as a “global” bank
operating under one brand since the 1990s, and with global technological
platforms to allow seamless activity across borders, in 2015 HSBC announced
its intention to disinvest from a number of key markets, and return to being a
regional, Asia-based player
INTERNATIONALIZATION VS GLOBALIZATION
represents a process of
developing products and
services, to bring about
expansion into the foreign
market.
mutual dependence of the
countries across the world,
facilitated by free trade and
remove of trade barriers
Interdependence
Mutual reliance between
groups of actors; individuals,
firms, countries, or regions
Mapping globalization
The main forces that shape globalization are:
socio-political developments
Political decisions (or indecision) shape the success
or failure of firms, and the competitiveness of
countries. Liberalization and the preferred policy
orientation of a country play a significant role in
shaping eco- nomic policy.
technology and innovation
The ability of firms to be successful depends
ultimately on their ability to generate new ideas
through innovation, and obvi- ously firms shape the
competitiveness of the location they are in.
TECHNOLOGY AND INNOVATION
the application of scientific knowledge for practical aims. It involves applying scientific concepts that
help us understand our environment, and allows us to convert this knowledge to develop and fabricate
artifacts.
Science and technology advance through innovation, which represents change in the stock of
knowledge. Technology and science are subsets of knowledge.
An invention is an idea, sketch, or model of any new or improved device, product, process, or system.
Innovations only occur when the new product, device, or process is involved in a commercial
transaction.
. Technology represents the cumulative stock of these innovations. It therefore includes all activities
that provide assets with which an economic actor can generate products or services. Science provides
us with more generic knowledge, which may or may not generate products and services.
Products and production are increasingly multi-technology in nature. Multi-technology firms must
maintain multiple competences, and maintain a minimum level of in-house expertise in several fields in
order to monitor externally developed knowledge and integrate it with its other production inputs.
SOCIO-POLITICAL DEVELOPMENTS
Stability of policies, and the creation and maintenance of the appropri- ate environment, plays a
significant role in promoting the appropriate environment for firms to prosper.
The ease with which goods and services move between countries can affect the com- petitiveness of
firms that are engaged in international business.